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Treasury Laws Amendment (2022 Measures No. 2) Bill 2022, which contains the reduction to the Eligibility age for a downsizer contribution, received Royal Assent in 12 December 2022). This means from 1 January 2023, a superannuation fund can accept eligible downsizer contributions from members who are aged 55 years and over.
The ATO has released CRT Alert 013/2022, noting that the reduced age of 55 will apply from 1 January 2023 (The eligibility age that applies up to 31 December 2022 is 60).
The relevant eligibility age applies at the time the contribution is made and generally the contribution must be made within 90 days of settlement (together with the downsizer contribution notification form). The reduction to the downsizer eligibility age may provide an opportunity for those who have recently sold their home and are not currently eligible for downsizer, due to age, but will be from 1 January 2023 and are still within the 90-day period to make a downsizer contribution.
Let’s consider the following examples……
Example 1
Fred and Wilma aged 57 and 56 respectively sold their home that they had lived in for 25 years in September 2022 for $1.15m. The sale contract was signed on 14 September, and it settled on 14 October 2022. Whilst their home qualified for downsizer, they each cannot make a downsizer contribution as they are under age 60, the eligibility age that applies up to 31 December 2022.
However, on 1 January 2023 the downsizer eligibility age is reduced to 55 which means both Fred and Wilma become eligible. The downsizer contribution generally must be made within 90 days of settlement of the sale, being 12 January 2023. The reduction in the downsizer eligibility age provides an opportunity for Fred and Wilma to make a downsizer contribution up to $300,000 each to their superannuation fund during the period 1 January to 12 January 2023. The contribution must also be accompanied by the relevant downsizer contribution form.
Example 2
Barney and Betty, both aged 54 sold their home that they had lived in for 15 years in November 2022 for $845,000. The sale contract was signed on 22 November 2022, and it will settle on 22 December 2022. Whilst their home qualified for downsizer, they each cannot make a downsizer contribution as they are under age 60, the eligibility age that applies up to 31 December 2022.
Barney turns 55 on 18 January 2023 and Betty turns 55 on 14 March 2023. As the downsizer eligibility age is reduced to 55 from 1 January 2023, each will have a short period in which they will be able to make a downsizer contribution, up to $300,000 each, commencing on their respective 55th birthday and ending on 22 March 2023, being 90 days from settlement. Again, the downsizer contribution form must be submitted to the fund trustee(s) no later than when the downsizer contribution is made.
Just because you’re eligible doesn’t mean you should
The reduction in the downsizer eligibility age from 65, to 60 and now to 55, means more individuals will be eligible. However, keep in mind that the downsizer measure can only be used once and that with the removal of the work test for those aged 67 to 74 (including up to 28 days after the end of the month the individual turns 75), consideration should be given to utilising other contribution caps.
In both the above examples the individuals may have access to the non-concessional cap and the bring forward rule, depending upon their respective prior 30 June 2022 total superannuation balances. If they do, is the amount they can contribute using the non-concessional bring forward rule enough? At their age, there may be a future opportunity to utilize the downsizer measure, for example, when they are over age 75 or where they do not have any non-concessional cap space.
Another consideration is the preservation rules. When the downsizer eligibility age was 65, this matched the Age 65 condition of release. So, if after making a downsizer contribution the individual wanted their money back, generally they had access. However, with a downsizer eligibility age under 65, such a contribution is subject to the preservation rules and to access will require the member to satisfy a condition of release, for example the retirement condition of release, or wait until their 65th birthday.
So, whilst it may be exciting to discover that a person is eligible for downsizer, it doesn’t mean that they should use it. Several factors will need to be considered before deciding that the downsizer measure should be used.